Exploring India's Equities Market with the iShares MSCI India ETF

The article discusses the iShares MSCI India ETF as a comprehensive coverage of the most important Indian ETF. The ETF offers exposure to equities from India for investors outside the country. It provides a convenient and cost-effective way to invest in Indian stocks, with a low expense ratio and a diversified portfolio. The article highlights the benefits of investing in the iShares MSCI India ETF, including its wide coverage of the Indian market and its ability to track the MSCI India Index.

Investors seeking exposure to the Indian equity market now have a multitude of ETF options. Among these, the iShares MSCI India ETF (INDA) stands out as a prime choice, with over $10.25 billion in assets under management (AUM), making it three times larger than the next largest ETF in the category [2]. Launched in February 2012, INDA is managed by BlackRock Fund Advisors and offers a diversified portfolio of 158 Indian stocks.

Key Features of iShares MSCI India ETF

The primary objective of the iShares MSCI India ETF is to track the MSCI India Index, which aims to capture 85% of the Indian equity universe. The MSCI India Index serves as a benchmark for foreign institutional investors (FIIs) and global portfolio managers. While INDA's performance is closely linked to the MSCI India Index, it is not identical due to its representative sampling policy. This policy ensures that INDA holds a sample of stocks that, in aggregate, have the same characteristics as the MSCI India Index, but not every stock. This approach results in a tracking error that is relatively higher compared to general ETF standards, ranging from 48% to 75% [2].

Portfolio Composition

The portfolio of the iShares MSCI India ETF is dominated by giant and large-cap stocks, with the former accounting for nearly two-thirds of the total holdings. This is a result of the free-float market-cap weighting policy employed by the MSCI India Index. Under this policy, a stock's weight in the index is proportionate to its free-float market capitalization. Consequently, the top 10 stocks in INDA's portfolio, which account for approximately 40% of the total portfolio, are heavily weighted towards financial stocks. Notably, four out of the top 10, including two of the top three, are financial stocks [2].

Benefits of Investing in iShares MSCI India ETF

Investing in the iShares MSCI India ETF offers several benefits:

1. Wide Coverage: INDA provides exposure to a broad range of Indian equities, offering investors a diversified portfolio.
2. Low Expense Ratio: With an expense ratio of 0.62%, INDA is cost-effective compared to other ETFs.
3. Semi-Annual Distribution Policy: INDA follows a semi-annual distribution policy, distributing dividends in June and December.
4. Tracking the MSCI India Index: By tracking the MSCI India Index, INDA provides investors with a well-established benchmark for performance.

Conclusion

The iShares MSCI India ETF is a robust option for investors seeking exposure to the Indian equity market. With a diversified portfolio, low expense ratio, and wide coverage, INDA offers a convenient and cost-effective way to invest in Indian stocks. While the ETF's performance may not be identical to the MSCI India Index, the tracking error is within acceptable ranges for a representative sampling policy. Investors should consider the ETF's characteristics and the current market conditions before making investment decisions.

References

[1] https://seekingalpha.com/article/4803271-smin-etf-risks-rewards-relativity
[2] https://seekingalpha.com/article/4803494-inda-comprehensive-coverage-of-most-important-indian-etf